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Put Profits First--Always

5 tips to maintain financial control of your business and keep the cash flowing.
December 3, 2009
URL: http://www.entrepreneur.com/article/204220

If you're reading this, you're probably already running your own small or midsized business. Maybe you're doing OK, but your competitors are doing better and you're wondering if you could be doing more to increase sales. Perhaps you're like hundreds of my clients who have suddenly found the tide has turned and the ship of easy profits has long sailed.

You can only blame so much on the economy. If you're struggling, you can't turn a profit no matter how hard you try, or if you're slicing your salary or facing foreclosure, it's because you're doing something wrong.

You have to ask yourself: "Why am I in business? What's my goal?" Your answer should be to make profits. Why go into business if not to make as much profit as you possibly can? But you must have controls and processes in place--otherwise you become a slave to meeting the payroll and paying your vendors, and you end up struggling to keep the business alive.

There is a way to take control: Put profits first. Always! Here are some tips on doing just that--and what to do if all else fails:

  1. Profits aren't everything, they're the only thing. It's time for an attitude adjustment. Decide now to make the total commitment to run over anyone or anything that gets in the way of your company's paramount need for profits. It's not about sales. It's not about how many employees you have. It's not even about your balance sheet. It's all about the cash. Collect what's owed, do a P&L statement weekly and cut costs viciously whenever necessary. Run your business strictly by the numbers.
  2. Forget sweat equity. Too many business owners believe that when they're building a business they shouldn't pay themselves a salary. Venture capitalists call this sweat equity. I call it working for nothing and being a fool. The inability to pay yourself a full salary is a red flag that there is something wrong with your business. You're the one who takes on all the risk, so take better care of yourself. It will give you the shot in the arm you need to make you a stronger leader. Show who's the boss by paying yourself like one. Money talks!
  3. Live and die by a real plan. Stop fibbing that you have a real financial and operating plan. If you do, it's probably gathering dust in the bottom of a drawer. Instead set forth your profit goals and use iron-clad fiscal discipline to enforce them. Budget using a profits first plan. Set aside what you can reasonably expect to make in the year, and adjust your expenses daily, weekly and monthly to meet that profit goal. Clear up the muddy math and expose the profit leaks. Hold employees accountable for staying within budget. Cut costs viciously to earn in good times and bad.
  4. You are not in business to pay your vendors. Managing a company's outgoing and incoming cash flow is daily hand-to-hand combat. Every day is a fight to cover costs. So why not use every weapon in your arsenal? Use your vendors as a source of reliable cash--never pay them on time! Stall, in a polite and orderly manner, and consciously expand your payables. Think of every dollar you can defer paying as an interest-free loan. Use and abuse your vendors. Be aggressive. The same goes for rent payments to your landlord. They'll get over it, as long as they know they'll get paid eventually.
  5. When filing for bankruptcy is your best option, do it early! Be warned. This is a remedy that takes a strong stomach. It's the toughest decision you'll ever have to make as a business owner. But if it's a choice between the perceived shame and giving your business a fighting chance, suck it up and do it, sooner rather than later. It's a fabulous financial and legal maneuver that will free you of 90 percent of debt, as well as any other contractual commitments. And if you make this move before your assets and cash flow run out you will have a much better chance of having a successful Chapter 11 Reorganization. The law exists for a good reason: it's the only legitimate way to defeat a tsunami of debt. So if you have to, make use of it.

Making a real profit takes unwavering dedication to your business. But if entrepreneurship is in your blood, why not work for the most that you can get? It all boils down to how hard you work, and how smart you work in good times and in bad.